With changes in the regulatory landscape for compounded products, as well as unique opportunities in producing sterile products, we have recently seen an uptick in inquiries from entrepreneurs, pharmacists, and investors looking to start FDA-registered 503B outsourcing facilities. This interest has been driven in part by the growing demand for sterile compounded drugs, persistent drug shortages, and increased scrutiny on traditional compounding practices. While the opportunity is real, so are the regulatory and operational complexities.
In exploring this pathway, many clients seek advice on what a 503B outsourcing facility is, how 503B outsourcing facilities are registered/licensed at both the federal and state level, and what steps an entity must take to become operational as a 503B outsourcing facility. Through this article, we hope to answer these questions, while providing insight on expected timelines and costs associated with starting a 503B outsourcing facility, as well as the ways that entities can leverage third parties, including consultants and legal counsel, to provide support in getting operational and staying compliant.
What Is a 503B Outsourcing Facility?
A 503B outsourcing facility is a type of compounding facility regulated under Section 503B of the federal Food, Drug, and Cosmetic Act (FDCA), added by the Drug Quality and Security Act (DQSA) in 2013. Unlike traditional compounding pharmacies, which fall under Section 503A, 503B facilities can:
- Compound medications in bulk without patient-specific prescriptions;
- Distribute compounded drugs across state lines without restriction; and
- Directly supply hospitals, physician offices, and other healthcare providers with products for in-office administration.
To do so, they must register with the FDA, adhere to Current Good Manufacturing Practice (cGMP) standards, and comply with both federal and applicable state laws and licensing requirements.
In essence, a 503B outsourcing facility bridges the gap between traditional compounding and commercial drug manufacturing—offering scale, efficiency, and broader distribution capabilities than a 503A pharmacy. While 503B outsourcing facilities are subject to more stringent regulations than 503A pharmacies, these regulatory requirements are still less stringent than those imposed on pharmaceutical manufacturing facilities.
Federal FDA Registration and Compliance
Initial Registration
To become a 503B outsourcing facility, a business must register with the FDA and must renew that registration annually. Key components of the registration process include:
- Identification of ownership and facility location;
- Listing of compounded drugs and ingredients;
- Designation of a responsible official;
- Submission of product reports (Form FDA 503B);
- Compliance with applicable drug listing and establishment registration requirements.
While a facility may obtain initial registration without being inspected by the FDA, and become listed as a “registered outsourcing facility,” registered outsourcing facilities are generally subject to later inspection by the FDA, as the FDA has authority to inspect the outsourcing facility for compliance with cGMP requirements and other obligations. Inspections may occur shortly after registration, or months later, depending on FDA resources and priorities. Importantly, the FDA makes clear that registration does not constitute FDA approval or endorsement, it simply means the facility has elected to fall under Section 503B and is subject to FDA inspection and oversight.
As a practical point, many facilities begin operations once registered, but this carries risk if the facility has not fully implemented all the requisite cGMP quality processes and procedures. If the FDA inspects and finds significant deficiencies (e.g., in cleanroom design, quality systems, or sterile practices), the agency can issue a Form 483, Warning Letter, or even pursue other enforcement actions. Hospitals and providers purchasing from 503B outsourcing facilities often look at FDA inspection history as a measure of reliability.
cGMP Requirements
As noted above, registering as a 503B outsourcing facility can be relatively straightforward once the facility submits the required registration information and pays the applicable user fee. However, once registered, it must overcome what is perhaps the most substantial hurdle: compliance with cGMP requirements. This entails implementing systems for a number of key components, including:
- Environmental and personnel monitoring;
- Equipment qualification;
- Batch recordkeeping;
- Quality assurance oversight;
- Process validation; and
- Adverse event reporting and complaint handling.
The FDA treats 503B outsourcing facilities much like commercial manufacturers when it comes to inspections and enforcement. Non-compliance can result in Warning Letters, Form 483 observations, and enforcement actions, including product recalls or facility shutdowns. Failure to comply with cGMP requirements or to pay required federal fees (e.g., establishment or reinspection fees) can also result in drugs being deemed misbranded under federal law. Thus, it is critically important that 503B outsourcing facilities have detailed processes and practices in place prior to initiating commercial operations.
State Licensure and Board of Pharmacy Compliance
Importantly, FDA registration alone is not sufficient. In nearly every state, 503B outsourcing facilities must also obtain licensure from the various State Boards of Pharmacy before shipping compounded drugs into that state.
The exact form or type of licensure required by the State Boards of Pharmacy may vary depending on different considerations, including:
- Manufacturer vs. Outsourcing Licensure: Some states classify 503B outsourcing facilities as manufacturers, others as compounding pharmacies, while others have created specific outsourcing facility license categories.
- In-State vs. Out-of-State Rules: Certain states may impose stricter requirements on out-of-state facilities shipping into their jurisdictions.
- Facility Inspection Requirements: Many states will require a pre-licensure inspection (by the state or NABP) or proof of satisfactory FDA inspection as a condition to obtaining state licensure.
- PIC and Pharmacist Licensure: Certain states require the Pharmacist-in-Charge (PIC) or other staff pharmacists to be licensed in the state, even if the facility itself is located elsewhere.
- Dual Licensure: Since Section 503B permits outsourcing facilities to dispense products directly to patients, many states will require facilities to obtain a traditional pharmacy license, but only when the facility dispenses prescriptions directly to patients.
The state licensure landscape is fragmented and constantly evolving. Navigating it requires a thoughtful, multi-jurisdictional approach and experienced guidance.
Steps to Launch a 503B Outsourcing Facility
Launching a 503B facility is a serious undertaking that requires coordination across regulatory, legal, operational, and business domains. Below is a high-level roadmap:
- Entity Formation and Business Structuring
Start with forming the legal entity and identifying investors, officers, and responsible individuals. This will often include:
- Choice of entity (e.g., LLC, corporation, etc.);
- Organizational agreements;
- Regulatory compliance structure (e.g., compliance officer, quality team);
- Site control (owning or leasing space that meets cleanroom specifications).
This step is often the easiest and most straightforward of the steps to be taken by an entity seeking to start a 503B outsourcing facility.
- Facility Design and Buildout
Design and construction of a cGMP-compliant facility is often the longest and most capital-intensive step. Considerations include:
- ISO-classified cleanrooms;
- HVAC/HEPA systems;
- Workflow design to prevent cross-contamination;
- Equipment qualification and validation.
This process can take several months (up to 6–12 months, or more), depending on necessary facility construction. Likewise, costs can range from several million to tens of millions of dollars, depending on size, design, and geographic location. At this stage, it will be important for entities to consider what types of products they are looking to produce, as this will drive necessary size, design and layout of the facility.
- Quality Systems Development
Concurrent with buildout, the entity must develop and implement robust quality systems, including:
- Standard operating procedures (SOPs);
- Environmental monitoring protocols;
- Batch record templates; and
- Vendor qualification programs.
Many companies choose to work with consultants or contract quality firms for this phase. This process can take 3-6 months, often overlapping with facility buildout.
- FDA Registration and Drug Listing
Once the facility is complete and systems are validated, the company can file for FDA registration and list its compounded products. The FDA will then assign an inspector for a pre-approval inspection (though facilities may begin operations before inspection, at their own risk). While the timing of the FDA inspection will vary, inspections typically occur within 6-12 months after opening.
- State Licensure
Finally, facilities must determine which states they intend to ship to, and initiate licensure applications for each. This process may include:
- Application filings;
- Inspections or inspection waivers;
- Payment of fees; and
- Staff pharmacist credentialing.
This process can take anywhere from 3 to 9 months (or more) depending on the state, and the facility will be required to pay the application fees to each state (which can range from $500–$2,000 per state, per year), along with any inspection costs for states that conduct their own inspections. While state Board of Pharmacy licensing consultants do exist, it is important to ensure careful review of all licensing applications, as incorrect information can not only delay that state’s license application, but can have cascading effects with other states in which the entity is licensed or is seeking licensure.
Legal Services: How Frier Levitt Can Help
Launching a 503B outsourcing facility involves a maze of legal and regulatory challenges. As experienced healthcare and life sciences attorneys, we offer comprehensive support across the entire lifecycle of a 503B operation, including assistance with entity formation and governance, as well as a range of FDA and state Board of Pharmacy compliance requirements.
We can (i) prepare and review FDA registration filings, (ii) assist in drafting cGMP-compliant SOPs, and (iii) support FDA inspection readiness and responses through mock inspections and enforcement defense. We can also advise clients on appropriate state licensure obligations across jurisdictions (depending on the nature of the facility’s intended operations), while also handling license applications and responding to pharmacy board inquiries. Finally, we can assist with other areas of ongoing support, such as drafting supply and distribution agreements, negotiating service and consulting contracts with quality vendors, and providing ongoing compliance support.
Final Thoughts
The market for 503B outsourcing facilities continues to evolve, offering real opportunities to meet clinical needs and solve supply chain challenges. But it is not a casual undertaking. The regulatory requirements are stringent, and the risks of missteps are high.
If you are considering launching a 503B outsourcing facility, or if you’ve already begun the process and need legal or regulatory support, our team is here to help. We work closely with compounding pharmacies, manufacturers, and outsourcing facilities nationwide to navigate these complex waters with confidence.
Frier Levitt provides strategic, industry-focused legal counsel tailored to your needs. Contact our team today to learn how we can help you.
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